Bank of America in talks to acquire Merrill Lynch
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From Times staff writer E. Scott Reckard:
Bank of America Corp. is in talks to buy brokerage giant Merrill Lynch & Co., in a deal that could help limit the repercussions from the expected demise of investment bank Lehman Bros. Holdings Inc.
In a day of extraordinary upheaval on Wall Street, BofA decided against buying Lehman without government assistance and instead entered negotiations to acquire Merrill Lynch, according to a person familiar with the discussions.
The potential combination of BofA and Merrill, first reported by the Wall Street Journal, could ease fears of calamity in the financial system stemming from the possible bankruptcy of Lehman.
Merrill is considered to be vulnerable because, like Lehman, it has suffered heavy financial hits from soured mortgage-related investments.
Merrill’s shares dived 36% last week, to end Friday at $17.05, a 12-year low.
BofA may agree to pay between $25 and $30 a share for Merrill, the New York Times reported today.
The Wall Street Journal reported that BofA had made an offer worth $29 a share, valuing Merrill at about $40 billion. Merrill’s shares hit an all-time high of $97.53 in January 2007, just before the first major signs of the current global credit crunch began to emerge.
UPDATE: The Wall Street Journal reported at about 6 p.m. PDT that Merrill and BofA have agreed to a deal worth $29 a share, or about $44 billion. It will apparently be a stock swap.
Charlotte, N.C.-based Bank of America, with $1.7 trillion in assets, is considered fundamentally healthy. But it also has seen its capital eroded by losses on mortgage securities and by the costs of acquiring Chicago’s La Salle Bank last year and taking over Calabasas-based mortgage lender Countrywide Financial Corp. this year.
For BofA CEO Ken Lewis, a deal to buy Merrill would give the banking titan a far larger presence in the wealth-management business. Merrill, under CEO John Thain, employs 16,700 financial advisors who oversee $1.6 trillion in client assets. But BofA also would be taking on the risk of deeper losses in Merrill’s own portfolio of mortgage securities and other investments.
BofA’s arch-rival, JPMorgan Chase & Co., bought failing investment bank Bear Stearns Cos. in March, in a rescue overseen by the Federal Reserve.
Spokesmen for BofA and New York-based Merrill declined to comment today.
However, a person close to the situation, who was not authorized to make public comments, said BofA shifted its focus to Merrill, and away from Lehman, because U.S. Treasury Secretary Henry M. Paulson Jr. had declined to provide any government ‘backstop’ for a Lehman deal.
After spending three days looking into Lehman, BofA couldn’t gauge what Lehman’s losses might turn out to be on toxic real estate investments, ‘and just couldn’t commit’ on such short notice to proceeding on its own, this person said.
The source wouldn’t discuss how much of a government guarantee would have been necessary for BofA to agree to buy Lehman.
The source also said the talks on a deal with Merrill were highly fluid.